Cancelled Direct Debits – what can you do?

We welcome your Direct Debit questions and queries. Recently we received the question below about cancelled Direct Debits:

“……The customer has cancelled their Direct Debit and also asked the bank to refund the last 6 months payments, but they have been receiving the service and the bank shouldn’t have …. so how can we get the bank to give us the money back?”

This is obviously a frustrating issue.  Customers cancelling their Direct Debit Instruction – and not making the Service User aware of it – can cause administrative difficulties.  We have responded to this question directly and provided more (specific) details but here are a few points for other Service Users that it’s worth remembering.

•  Under the Direct Debit Guarantee a customer has the right to cancel their Direct Debit and request a return of the funds paid out.  It is the banks duty to check whether there is a valid reason for the request to cancel – if the request fulfils a valid criteria (as set out in the Service Users Guide) then they will undertake this.  For more details on valid criteria, please see the Service Users Guide or contact us to discuss.
• It is better for the bank to refund the customer than for you, the Service User to do so.  Bacs actually advise that the service user should never refund the monies directly and should instead request the customer to raise an indemnity claim.  If you do refund the money directly it is possible that the customer will still raise the indemnity claim with their bank at a later date (the Guarantee is unlimited in time and amount) so you could end up paying the money back twice.
• If you believe an indemnity claim has been raised incorrectly (resulting in the customer being repaid previous collections) there is both a counter claim and appeals process – both of which are subject to strict rules.  Please see the Service Users Guide for details on these or contact us if you wish to discuss these.
• The Direct Debit Instruction is a contract between the customer and their bank – not you, the Service User and the customer. The bank will therefore be more likely to accept the word of their customer and action the request to cancel the Direct Debit Guarantee (assuming a valid criteria) and you as a Service User will then need to respond according to the circumstances.
• The Direct Debit Instruction only relates to how the money will be collected. If you have a contract with the customer about the service being delivered you are within your rights to approach the customer and request payment for services already received via an alternative route – even if the Direct Debit Guarantee has been invoked and the Direct Debit cancelled.
• If a Direct Debit Instruction is cancelled and you subsequently agree with the customer to start collecting their money via Direct Debit again you can in some instances re-instate the Direct Debit Instruction without a new DDI needing to be signed.  If the DDI is cancelled and you receive an ADDACS reason code 0 – cancelled by the bank – a new DDI will be required.  If you receive an ADDACS report with reason code 1 however – cancelled by the payer – the DDI can be reinstated – as long as it is within 2 months of the cancellation date.  Either the payer can contact their bank and request the DDI to be reinstated (easier for non AUDDIS Service Users) or the Service User (once they have the permission of the payer) can reinstate it by sending a 0N code (followed by 01, then 17 code as usual).

The key thing is to keep communicating with your customer to understand why they have cancelled their Direct Debit and to resolve their concern.  If you do have questions about the technicalities however of how to manage the situation, please contact us and we will be pleased to provide specific advice and support.